Pipavav, Mazagaon Dock to set up JV; to build warships for Navy

MUMBAI: Nikhil Gandhi-promoted Pipavav Defence and Offshore Engineering has been selected by Mazagon Dock as preferred partner for a joint venture that will look to build warships and submarines for Indian Navy. Mazagon Dock is India's biggest defence shipyard and accounts for more than 85% of the defence vessels built in the country.

The joint venture, which was earlier announced in September 2011, was put on hold by the ministry of defence due to allegations from Pipavav's rivals over selection policy.

"The government of India has conveyed, vide its letter dated May 2, 2012, that Pipavav Defence and Offshore Engineering Co Ltd has been chosen as its partner for formation of joint venture to build warships for Indian Navy," Pipavav said in a statement to BSE.

In September last year, immediately after the announcement of the deal, Pipavav's rivals, including the country's largest infrastructure company, L&T, and India's largest private shipyard, ABG Shipyard, had complained to the ministry about discrepancies in the selection process followed by Mazagon.

They had complained separately to the ministry that the state-owned shipyard had set no deadlines for submitting the proposals and did not disclose the evaluation criteria. Following the allegations, the ministry deferred the deal until a new policy on joint ventures was put in place and said it would study the complaints received from private shipyards.

"The issue needs to be fully examined and settled," the defence minister had said. In February, the defence ministry issued new policy guidelines for establishing joint venture companies by defence undertakings and the provisions included the retention of affirmative right of a state-owned defence firm for prior approval of key decisions of the JV company such as amendments to memorandum of association or articles of association or restructuring of the JV by issue or buy-back of shares.

The 50:50 joint venture named Mazagon Dock Pipavav will implement part of the existing orders of Mazagon Dock of Rs 1,00,000 crore ($21.69 billion) and also bid for future defence contracts in India. "This partnership is formed primarily to fastforward the process of warships and submarine contracts held currently by the MDL," Nikhil Gandhi, chairman of Pipavav Defence had earlier said.

The selection of Pipavav had led to some uncertainty regarding how the joint venture, Mazagon Dock Pipavav Ltd, would look at executing the order book of Mazagon Dock which stood at more than Rs 1 lakh crore and also undertake new projects together.

In 2011, the government had agreed to allow public private partnerships in the defence sector and Mazagon Dock was the first to get off the block while the other three - Cochin Shipyard, Hindustan Shipyard and Garden Reach Shipbuilders - were expected to follow suit.

At stake are defence contracts worth crores of rupees to build the Indian Navy's requirement of warships in coming years. On Thursday, shares of Pipavav Defence closed at Rs 86.70 on BSE, up 8.5% from previous close, in a weak broad market where benchmark Sensex ended down 150 points.